Getting Out Early
Getting Out Early
Must read for any trader who intends to continue trading the Nasdaq casino:
This paper examines trading volume for Nasdaq market makers around analyst recommendation changes issued by an analyst at the same firm. Using Nasdaq Post-Data, we find a disproportionate increase in market making volume associated with the firm’s recommendation changes and evidence of elevated sell volume at the recommending analyst’s firm in the 2 days preceding a downgrade. The implications are that the information source matters in determining the placement of trades and that the issuing analyst’s firm appears to be rewarded for prereleasing information through increased volume. These findings constitute new evidence of compensation for research production through the market making channel.
Hat tip to Nummy – great find.